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Do I have to Complete?
Issues which arise when contracting parties change their minds
about the sale/purchase of land.
(1) Introduction
1.1
In a rising property market vendors are eager to rid themselves
of contracts for sale so that they can remarket and sell at a higher
price. In a falling market, it will be the purchaser who is trying to
avoid the contract for sale and who is lamenting the day he ever
signed on the dotted line. The current meltdown in the economy and
the corresponding crash in the property market has led to an
increasing number of instructions from purchasers who have either
found themselves unable to secure funding to complete their
transaction or who are simply reluctant to complete a contract under
which they acquire property which is now worth substantially less
than the contractual purchase price.
1.2
When a party to a contract for sale asks ‘do I have to
complete?’ the answer is more often than not ‘yes’. This seminar
explores some of the issues that arise when a party wants to withdraw
from a contract for sale and when it may be possible to tell the client
‘no’ and in particular, the following issues are addressed:
(1) The requirements for a valid contract for sale
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(2) Problems which arise under conditional contracts:
• Agreements to agree
• Agreements to secure a third party’s agreement
• Contracts conditional on obtaining planning permission
• Leasehold sales: contracts conditional on landlord’s consent
(3) How contracts for sale may be terminated:
• Terminology
• Termination for breach
• The effect of delay in completion
(4) How contracts for sale may be avoided:
• Misdescription / misrepresentation / non-disclosure
• Mistake
(5) How contracts for sale are enforced: specific performance
(2) The Contract for Sale
(a) Formalities
2.1
The obvious starting point in any vendor/purchaser dispute it
the contract itself. It is well known that a contract for the sale or other
disposition of land made after 27th September 1989 (the date when the
Law of Property (Miscellaneous Provisions) Act 1989 came into
force) can only be made in writing and only by incorporating all the
terms which the parties have expressly agreed in one document, or
where contracts are exchanged, in each. It is also necessary for that
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document, or if contracts are exchanged one of them, to be signed by
or on behalf of each party to the contract (section 2 of the 1989 Act).
2.2
An agreement which does not comply with section 2 is void.
Thus a client who wants to avoid an oral or a ‘back of the envelope’
agreement will usually be given positive advice. But even in this
situation, if the parties have acted in reliance on the void contract, the
circumstances may be such as to give rise to an estoppel or even a
constructive trust. If a party has incurred expenditure in reliance upon
a void contract it may also be relevant to consider whether that party
has a restitutionary remedy. For some of the complex issues (which
are beyond the scope of this paper) which arise where a potential
purchaser has acted in reliance on the hope of securing an agreement
to buy certain land, see the decision of the House of Lords in Cobbe v
Yeoman’s Row Limited [2008] 1 WLR 1752.
2.3
Even where there is a formal contract which complies with
section 2 it is not uncommon to find that the parties have re-negotiated
one or more of the terms to the contract. Such variations are often
conducted informally and may result in an oral agreement or may
simply be referred to in correspondence.
2.4
Where there is a valid written contract, any subsequent
agreement to vary a material term which does not itself comply with
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section 2 will be invalid: McCausland v Duncan Laurie Ltd [1997] 1
WLR 38; Dolphin Quays Developments Ltd v Mills (2007) 1 P&CR
201. The question as to what constitutes a “material” term of the
contract appears to be fertile ground for litigation, although in most
cases, the answer will be obvious. So, for example, provisions as to
the price, the completion date etc. (which may be the most common
contenders for a variation) will almost always be “material” for this
purpose. Therefore, a variation agreed orally, or by exchange of
correspondence, may not bind the parties.
2.5
Where the failure to comply with section 2 means that a
purported variation is a nullity, one of the parties may wish to rely on
this to seek to avoid the original contract. In an exceptional case, it
may be possible to argue that the change which was agreed between
the parties was so fundamental as to amount to rescission of the
contract. (See e.g. British Benningtons Ltd v N.W. Cachar Tea Co Ltd
[1923] AC 48 (at p. 68) and Ginns v Tabor [1995] EGCS 182).
However, more often than not, a void variation will not mean that the
original contract does not have to be completed: the original contract
will remain enforceable because there will have been no binding
agreement which has superseded it.
2.6
One exception to section 2 is a contract for sale made at
auction. Such contracts are excluded from the application of section 2
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by section 2(5)(b) and a binding contract is made on the fall of the
hammer, even in the absence of writing. It is not uncommon, however,
to find that a property which did not sell at auction is purchased by
private treaty immediately after the auction. These contracts for sale
are often made in haste and it is easy to forget that for sale made in
this way will not be excluded by section 2(5)(b) and accordingly will
have to comply with the section 2 formalities.
(b) Open Contracts
2.7
An informal agreement is often struck down by section 2 but an
agreement which provides no more than ‘X agrees to buy Blackacre
from Y for £x’ may give rise to a binding contract for sale (provided
that such a contract is made in writing and is signed). A contract
which leaves many of its terms to be implied is known as an open
contract. Open contracts are rare given the strict requirements of
section 2, but may arise where parties have not taken legal advice.
2.8
Providing the agreement complies with the formalities of
section 2, the law will strive to uphold the parties’ bargain by
implying suitable terms, e.g. that the vendor must show good title
within a reasonable time and thereafter complete the contract by an
appropriate conveyance/transfer.
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(c) Formal Contracts
2.9
Written contracts for sale normally contain ‘special conditions’
(dealing with matters such as the identity of the parties, the property,
the incumbrances to which the sale might be subject, the completion
date, etc.) and ‘general conditions’ (standard form conditions
regulating a wide range of matters which may arise in the course of a
conveyancing transaction).
2.10 The Standard Conditions of Sale (4th edition) or, if the
transaction involves commercial property) the Standard Commercial
Property Conditions (second edition) are often expressly incorporated
into a contract for sale. However, not all of these standard conditions
will be appropriate for every transaction and there will usually be
various exclusions or amendments to the standard conditions
incorporated into the special conditions.
(3) Conditional Contracts
3.1
A contract that is subject to some form of condition may be
used where, for example, the buyer has not had an opportunity before
exchange to make searches and enquiries, where mortgage
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arrangements have not been finalised or where development land is
being sold and planning permission is required.
3.2
A conditional contract must be distinguished from an agreement
where there is a condition precedent to the making of a binding
agreement (e.g. an agreement ‘subject to contract’). In such a case
there is no contract at all until the condition has been satisfied.
3.3
A true conditional contract will arise where X enters into a
bilateral contract to sell property to Y subject to a condition precedent
(which either party may be obliged to bring about). In such a case
there will be a binding contract but until the relevant condition is
satisfied there is no contract for the sale of land. Thus one way in
which a party may avoid or at least defer a call to complete a
transaction is by demonstrating that a condition precedent has not
been satisfied.
3.4
Another form of conditional contract is where there is a
condition subsequent. In such a contract there is an immediate binding
contract for sale which made be terminated if a condition to which it is
subject is not performed. An example of this is a contract for the sale
of land which may be terminated if planning permission is not granted
by a certain date as to which, see below. It is often the case that such
contracts also contain an obligation on one party to perform the
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condition or use best endeavours to satisfy the condition within a
certain time.
(4) Agreements to agree
4.1
It is trite law that an “agreement to agree” will be struck down
by the courts as being void for uncertainty. Likewise, agreements to
use best endeavours to reach agreement: Little v Courage (1995) 70 P
& CR 469. See also London & Regional Investments v T.B.I. [2002]
EWCA Civ 355, in which a clause in a preliminary agreement under
which the parties undertook to use reasonable endeavours to agree the
terms of a joint venture was held to be too uncertain to be capable of
enforcement.
4.2
Nevertheless, the fact that an agreement leaves certain elements
to be the subject of further agreement will not always render the
agreement void. For example, in a different context, in Petromec Inv.
v Petroleo Brasileiro [2006] 1 Lloyds Rep 121, a specific clause in a
detailed and wide-ranging agreement provided that the parties were to
negotiate in good faith the cost of one element of their transaction.
The Court of Appeal held that this did not render the whole of the
agreement void for uncertainty. There was already an agreement in
place and the obligation which was uncertain comprised one particular
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aspect of that agreement. In these circumstances, the courts will strive
to fill the gap by implying suitable terms. So, if, in a detailed
development agreement, the parties agreed to negotiate the terms of a
satisfactory planning application, the Court may strive to uphold the
agreement by having regard to the overriding criterion of
reasonableness, which would be governed by the context of the
agreement as a whole.
(5) Agreements to secure a third party’s agreement
5.1
Agreements for sale which contain a term requiring one of the
parties to secure the agreement of a third party are common. An
example is an agreement by the vendor to secure the release of
restrictive covenants which impede development. Moreover, where a
contract is conditional upon the purchaser securing planning
permission, the purchaser might be required to enter into an agreement
under s.106 of the Town & Country Planning Act 1990 in order to
obtain planning permission.
5.2
In Yewbelle Ltd v London Green Developments Ltd [2007] 2
EGLR 152, the Court of Appeal upheld the validity of a contract
which contained such a provision. However, in that case, the vendor
had used all reasonable endeavours (as required by the contract) to
obtain a s.106 agreement with the Council in the form of the draft
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agreement appended to the contract of sale, but was unable to do so
and therefore within a reasonable time (there being no long stop date),
the contract was treated as discharged and for that reason, specific
performance was refused.
(6) Development Obligations: Contract Conditional on Planning
Permission
6.1
Frequently, it is potential developers who have entered into
speculative purchase agreements in the hope of obtaining planning
permission who seek to extricate themselves from their bargain when
the economics of the proposed development start to fall apart in a
falling market.
6.2
A typical development agreement might provide for a purchaser
to purchase land which is ripe for development, conditional upon the
purchaser obtaining planning permission. It is often a term of the
agreement that the vendor will co-operate in certain defined ways in
the planning process (e.g. by affording access for specified purposes).
However, the most common form of dispute in relation to agreements
of this sort is as to the steps which the purchaser is obliged to take to
secure planning permission and the nature of the planning permission
which the purchaser is obliged to obtain. A well-drafted development
agreement of this sort will spell out some or all of the following:
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(1) The type of development for which a planning application is
required to be made;
(2) The timescale for each stage of the planning process: e.g.
initial investigations, consultation with planning offices,
submission of planning application, time for submitting any
appeal against refusal.
(3) The type of planning permission which will trigger the
obligation to buy, e.g. outline permission or final
permission.
(4) Requirements for the purchaser to keep the vendor informed
of the various steps that are being taken (e.g. provide copies
of applications / correspondence with the local planning
authority).
6.3
It is in the purchaser’s interest to ensure that the obligation to
obtain planning permission is limited to a permission which permits
the purchaser to develop in accordance with his plans. If the planning
authority is not prepared to permit the development which the
purchaser intends to carry out, but will sanction some lesser or
different development which will not produce the returns which the
purchaser hopes to make, the purchaser will wish to avoid completing
the purchase. Frequently, agreements make completion conditional
upon obtaining a “satisfactory” planning permission (see Millers
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Wharf Partnership Ltd v Corinthian Column Ltd (1990) 61 P & CR
461). Well-drawn agreements will go further and define what is meant
by “satisfactory”. Nevertheless, however detailed the definition might
be, there will often be scope for argument about whether or not a
particular planning permission which has been obtained satisfies the
requirements of the contract and therefore obliges the purchaser to
complete.
6.4
Timing is also important in development agreements where a
contract for sale is made conditional upon obtaining planning
permission. The planning process can be slow. Depending upon the
circumstances (which are likely to include the state of the market),
both vendor and purchaser will require some degree of certainty as to
when the contract must be completed on the one hand and when, on
the other, they will be entitled to walk away. If the contract does not
stipulate any time limits for making a planning application, it is likely
that a reasonable time will be implied. However, where the purchaser
is subject to an obligation to use reasonable endeavours to obtain
planning application, for so long as the purchaser continues to use
reasonable endeavours, the fact that planning permission has not been
obtained would not entitled the vendor to terminate the contract:
Jolley v Carmel Ltd [2000] 3 EGLR 68.
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6.5
Frequently, however, there is a “long stop date” by which either
party is entitled to terminate the contract if planning permission has
not been obtained. Where that is the case, if no planning permission
has been obtained by that date, it will be open to either party to
terminate the contract. If a permission has been obtained, but the
purchaser argues that it does not satisfy the requirements of the
agreement which govern the nature of the planning permission
required, there may be a dispute as to whether or not the purchaser is
entitled to terminate on or after the long stop date. Some agreements
provide that such disputes are referred to expert determination rather
than the court.
6.6
There is also often an obligation on the purchaser to use
reasonable endeavours to obtain a satisfactory planning permission.
This is an important counter-balance for the vendor because otherwise
the purchaser has sole control as to (a) if and (b) when the contract
will be completed. Frequently, a claim by a purchaser to terminate a
contract for sale for failure to secure satisfactory planning permission
will be met by a counterclaim by the vendor for damages for failure to
use reasonable endeavours to secure such a planning permission. It is
also important to distinguish between the different levels of obligation
which might be imposed on a purchaser. An obligation to use “all
reasonable endeavours” will impose a higher burden on a purchaser
than just “reasonable endeavours” and a yet more onerous obligation
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is imposed by the requirement to use “best endeavours”: see Jolley v
Carmel Ltd (above) and Rhodia International Holdings Ltd v
Huntsman International LLC [2007] 2 Lloyds 325.
(7)
Landlord
&
Tenant
Context:
Conditional
purchase
agreements
7.1
As noted above, it is common, in an agreement for sale of
leasehold property where the lease contains a covenant prohibiting an
assignment without the landlord’s consent, for the contract for sale to
be made conditional upon the landlord’s consent being obtained.
Condition 8.3 of the Standard Conditions (4th Edition) is in the
following terms:
8.3.1 (a) The following provisions apply if a consent to let,
assign or sub-let is required to complete the contract;
(b) In this condition ‘consent’ means consent in the form
which satisfies the requirement to obtain it.
8.3.2 (a) The Seller is to apply for the consent at his expense,
and use all reasonable efforts to obtain it.
(b) the buyer is to provide all information and references
reasonably required.
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8.3.3 Unless he is in breach of his obligation under condition
8.3.2, either party may rescind the contract by notice to
the other party if three working days before the
completion date (or before a later day on which the
parties have agreed to complete the contract):
(a) the consent has not been given, or
(b) the consent has been given subject to a condition to
which a party reasonably objects. In that case neither
party is to be treated as in breach of contract and
condition 7.2 applies.
7.2
Standard condition 7.2 provides that if either party rescinds the
contract, unless the rescission is a result of the buyer’s breach of
contract the deposit is to be repaid to the buyer with accrued interest.
7.3
The application of standard condition 8.3 was considered by
the Sales J. in the recent case of Alchemy Estates Ltd v Astor [2008]
EWHC Civ 2675 (Ch). The defendants were the sellers and the
claimants the purchasers of leasehold property, subject to the Standard
Conditions of Sale (4th Edition), including condition 8.3. Due to
confusion between the parties as to whose responsibility it was to
obtain the landlords’ consent, no approach was made until shortly
before the completion date. The completion date came and went
without consent having been obtained. A little over two months after
the completion date, the purchasers purported to rescind the contract
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under standard condition 8.3, consent not having been obtained by that
date. The purchasers brought a claim for the return of the deposit and
the vendors counterclaimed for specific performance. The vendors
relied on two arguments. First, the vendors argued that the purchaser
was in breach of the obligation in clause 8.3.2(b), to comply with the
requirements for providing references and accounts, but this argument
failed.
7.4
However, the Judge accepted the Vendor’s alternative
argument, that by 19 May 2008, when the purchaser purported to
rescind the contract, it had effectively lost the right to do so through
lapse of time. He considered standard condition 8.3 and concluded as
follows:
“I consider that it is clear that neither the drafters of the
Standard Conditions nor the parties intended that the effect
of a right to rescind arising under standard condition 8.3.3
shortly before the contractual completion date should
continue indefinitely thereafter, so as to afford each party the
potential ability to bring the agreement to an end without
any warning at all (no matter how much time, effort and
expense the other may have put into working for the proper
completion of the agreement after the contractual completion
date has passed, and no matter how close they may be to
being able to achieve completion). If the right of rescission
under standard condition 8.3.3 is not exercised promptly - by
which I mean by the contractual completion date (which was
found to be acceptable in Aubergine Enterprises) or perhaps
a matter of a day or two thereafter - both parties must be
taken to have decided that they wish to proceed with the
original allocation of risk set out in their agreement.”
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He went on to say:
“I do not consider that the parties intended, by the
incorporation of standard condition 8.3.3 into the Contract,
to create a right arising in the immediate period before the
contractual completion date but not used then, which either
of them could simply keep in their pocket and then use later
at any time after the contractual completion date without any
prior warning to the other, if the contract was no longer
thought to be commercially attractive (as Alchemy sought to
do here). In my view, the contractual right of rescission
under the standard condition must be exercised promptly,
which means by the contractual completion date or,
possibly, within a day or two thereafter.”
7.5
As an alternative basis for his decision, at paragraphs 67 and 68,
Sales J held that the purchaser had given a clear and unequivocal
indication, after the completion date, that it regarded the contract as on
foot. In other words, the purchaser affirmed the contract, thereby
waiving the right to rescind.
7.6
The proposition that a right of rescission under condition 8.3.3
must be exercised promptly and within a reasonable time cannot be
disputed. However, on the facts of the case before the court, there was
more than two months’ delay, and therefore the comment that the right
must be exercised within a day or two of completion was obiter.
Moreover, it would appear that the decision on affirmation was a far
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more straightforward and obvious route to the same decision.
However, that does not affect the binding force of the decision that (a)
the right to rescind must be exercised promptly and (b) by the time it
was exercised in that case (more than two months after the completion
date), the right to rescind had been lost.
(8) Bringing a contract to an end: terminology
8.1
Use of the term ‘rescission’ can be misleading as it is often used
in two different contexts. Where X indicates that he does not intend to
complete his side of a contract (expressly or by implication) or where
X is in breach of an obligation which is of fundamental importance to
a contract, Y, the innocent party, is entitled to regard the contract as at
an end as regards his further performance. Termination of a contract
in this way, following a breach, is often referred to as “rescission”.
Because of the alternative use of the term “rescind” (described below),
it is preferable to use the simpler terminology of “terminating” the
contract for breach rather than rescinding it.
8.2
Where Y is the purchaser, he may recover any deposit which he
has been paid and sue for damages. Where Y is the vendor, he may
forfeit any deposit and sue for damages suffered.
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8.3
The label “rescission” is also applied where a contract is
voidable, for example because of fraud, misrepresentation or mistake,
in which case the innocent party may rescind the contract and treat it
as if it never existed. This is known as rescission ab initio. In this
case, damages may be claimed to put the innocent party back into the
position he would have been in had the contract never been made.
(9) Termination for breach
9.1
A right to terminate a contract may be given by a specific
contractual condition which sets out the circumstances in which the
right arises. There is, of course, no such right under an open contract
(see above). Under the Standard Conditions of Sale (4th edition), the
right to terminate is available in the following situations:
(1)
where risk in the property remains with the seller and at
any time before completion the physical state of the property
makes it unusable for its purpose at the date of the contract
(Standard Condition 5.1.2);
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(2)
where any plan or statement in the contract, or in
negotiations leading to the contract is or was misleading or
inaccurate due to an error or omission (Condition 7.1.3);
(3)
where a licence to assign or sub-let is not forthcoming
(Condition 8.3.3) (see below);
(4)
where either the buyer or the seller has failed to comply
with a notice to complete (Condition 7.5 and 7.6).
(The Standard Commercial Conditions (2nd edition) contain
similar provisions, save for (a)).
9.2
Where there is no express right to terminate, the question of
whether a party will be entitled to treat a contract as terminated for
breach will depend on the nature of the breach. Breach of a trivial
term will not entitle the innocent party to rescind. Whether in any
given case a breach constitutes a fundamental breach justifying
rescission will depends on the facts and circumstances of the case.
9.3
A common breach of contract which has given rise to
difficulties with regard to the rights of the innocent party to terminate
is delay, which is addressed in the following section.
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(10) The Effect of Delay
10.1 The date of completion is usually specifically agreed but in the
absence of an express agreement it will be assumed that completion is
to take place within a reasonable time. If the Standard Conditions
apply, Standard Condition 6.1.1 and Standard Commercial Property
Condition 8.1.1 provide that completion shall take place 20 working
days after exchange.
10.2 Standard Condition 6.1.1 and Standard Commercial Condition
8.6.1 also expressly provide that time is not of the essence of the
completion date unless a notice to complete has been served. This is
consistent with the general rule that time is not of the essence of a
contract unless (1) the contract expressly stipulates so, (2) the nature
and subject matter of the contract is such that time should be
considered to be of the essence, or (3) the parties make it so by giving
notice, although this is frequently modified by the special conditions.
10.3 The contract may, of course, expressly make time to complete
of the essence. If it does, failure to complete on the contractual
completion day will constitute a fundamental breach of the contract
entitling to the innocent party to rescind. In the absence of a provision
making time of the essence delay in completion gives rise to an action
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in damages for breach of contract (and may bring into play the
compensation provisions of Standard Condition 7.3 and Standard
Commercial Condition 9.3) but it does not entitle the innocent party to
withdraw from the contract.
10.4 In order to make time of the essence, it is thus usually necessary
to serve a notice to complete. Condition 7.5 of the Standard
Conditions of Sale (4th Edition) provides that if a buyer fails to
complete in accordance with a notice to complete:
(1)
The seller may rescind the contract;
(2)
If the seller does so, he may forfeit and keep the deposit
and accrued interest;
(3)
He may resell the property and any chattels included in
the contract; and
(4)
He may claim damages.
10.5 Where a seller fails to comply with a notice to complete,
condition 7.5 provides that the buyer may rescind and is entitled to the
return of the deposit with accrued interest. The buyer’s rights and
remedies are preserved, so that he may, in addition, sue for damages
for any loss suffered.
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10.6 It has often been said that care should be taken when serving a
notice to complete. This is good advice. In a rising or falling market,
the careless service of a notice to complete has often proved to be a
fertile source of litigation.
10.7 The giver of a notice to complete must be ready willing and
able to complete at the date of service and thereafter. The Standard
Conditions provide that following the service of a notice to complete
the parties are to complete within ten working days (excluding the day
of service). Time, of course, is now of the essence but this is the case
for both vendor and purchaser. Once a notice has been given it cannot
unilaterally be withdrawn by the server. Thus, if the server of the
notice is not careful he may find that he has fallen into his own trap.
10.8 It is also extremely important to check before seeking to
terminate a contract that a notice is valid. A question which sometimes
arises is whether the wrongful service of a notice terminating the
contract amounts to a repudiatory breach, in itself, entitling the other
party to terminate. The question of whether this entitles the “innocent”
party to terminate will often be relevant to the issues of whether the
deposit should be repaid to the purchaser and / or who is entitled to
claim damages.
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10.9 In
Woodar
Investment
Developments
Ltd
v
Wimpey
Construction UK Ltd [1980] 1 WLR 277, a contract for sale contained
a termination clause in the event of the land being subject to a
compulsory purchase order, which was exercised by the purchaser.
However, the purchaser’s termination was subsequently held to be
invalid. In the meantime, the vendor sought to rely on the purchaser’s
wrongful repudiation of the contract. The House of Lords was split as
to whether the service of the termination notice amounted to a
repudiation of the contract and the majority held that it did not. Lord
Wilberforce referred to the fact that the party who wrongfully
terminated, honestly believing that he was entitled to do so, was not
manifesting an “ulterior intention to abandon the contract”, since he
“bona fide relied upon an express stipulation in the contract”.
10.10 This decision has been more or less limited to its own facts by
subsequent authorities: see Dalkia Utilities v Celtech [2006] 1 Lloyds
Rep and Golf Agri Trade v Aston Agro Industrial [2008] EWHC 1252
(Comm). In practice, this argument can be avoided, where there is
uncertainty surrounding the entitlement to give a notice, by giving it
“without prejudice” to the future performance of the contract.
(11) How is the contract terminated?
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11.1 Where one party to the contract has failed to complete, after
time has been made of the essence, the “innocent” party must make an
election. The choice which confronts the innocent party (whether
vendor or purchaser) was explained in the leading case of Johnson v
Agnew [1980] AC 367:
(1) if the purchaser fails to complete, the vendor has the option
to either treat the purchaser as having repudiated, accept the
repudiation and claim damages, or in the alternative, he may
press for performance by seeking specific performance with
damages payable in addition to specific performance for any
loss arising from the delay;
(2) it is open to the vendor to keep open his right to elect
between the above remedies until trial;
(3) once the vendor has elected (at whatever stage that might
be), the election will be final; if the vendor elects to
repudiate,
he
cannot
subsequently
seek
specific
performance.
(12) Rescission ab initio
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12.1 This is not the place for a detailed explanation of the various
factors which might be relied upon to avoid a contract. However, there
follows an outline of some of the points which might be relied upon.
Misdescription
12.2 A misdescription refers to an error in the particulars of sale for
example an error relating to the physical extent of the property to be
sold. If the error is substantial so that it can be said to substantially
deprive the buyer of his bargain (see e.g. Watson v Burton [1957] 1
WLR 19) it may entitle the buyer to rescind. However, more often
than not, a misdescription will amount to a misrepresentation and it is
more common to rely on the Misrepresentation Act 1967 (see below).
Misrepresentation
12.3 If a purchaser has been induced to enter a contract by a false
representation he may be entitled to rescind the contract. In summary,
what is required for a misrepresentation is a statement of fact (by
words or conduct) which is untrue and which is relied on and which
induces the aggrieved party to enter into the contract. A
misrepresentation
may
be
fraudulent
(deliberately
dishonest),
negligent (made carelessly), or innocent (a genuine and innocent
mistake).
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12.4 A representation which was made negligently or fraudulently
may give rise to a remedy under the Misrepresentation Act 1967. If a
misrepresentation has been made fraudulently the aggrieved party may
also have a remedy in the tort of deceit.
The remedies for
negligent/fraudulent misrepresentation under the 1967 Act are
rescission of the contract and damages. In the case of an innocent
misrepresentation rescission is available but not damages. Damages
are awarded on a tortuous basis (s. 2(2)). Rescission is likely to be
granted if the misrepresentation induced the innocent party to enter
into the contract and the effect of the misrepresentation is to deprive
the innocent party substantially of his bargain. (See e.g. Museprime
Properties Ltd v Adhill Properties Ltd (1990) 61 P&CR 111.)
Non-Disclosure
12.5 It is an implied term of a contract for sale that the vendor is
selling free of incumbrances, save for those to which the contract is
expressly made subject. The vendor is accordingly under a duty to
disclose latent defects and incumbrances to his title. Failure to comply
with this duty, if substantial, may entitle the buyer to rescind.
Mistake
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12.6 A contract which has been entered into under a fundamental
mistake of fact is void at common law and will be set aside. (For
example, if the vendor contracts to purchase property which he
already owns! (Cooper v Phibbs (1865) 17 1 Ch R 37)).
(13) Specific Performance
13.1 This remedy is commonly sought by both vendors and
purchasers.
The Standard Conditions and Standard Commercial
Conditions provide that if a notice to complete has not been complied
with, the innocent party’s right to apply for specific performance is
not excluded.
13.2 To a party seeking to avoid a contract for sale, a claim for
specific performance is bad news as this remedy is usually available to
a purchaser or vendor as a matter of course. However, when faced
with a claim for specific performance, the person seeking to get out of
a contract may be able to defeat a claim if he can establish an
equitable defence. For example specific performance may not be
awarded if:
(1)
damages will be an adequate remedy (although this will
rarely, if ever, apply in relation to a contract for the sale of land:
see AMEC Properties Ltd v Planning Research & Systems Plc
[1992] 1 EGLR 70);
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(2)
a contracting party lacks contractual capacity;
(3)
the vendor cannot establish a good title;
(4)
mistake, fraud, illegality can be established;
(5)
enforcement of the contract would require the court’s
supervision (although this rarely the case in relation to a
contract for the sale of land);
(6)
specific performance will cause great hardship, although
again, this is not something which will readily be relied on in
the context of a contract to sell land. In particular, it is very
unlikely that changes in the market which make a deal
unprofitable for one party would affect the exercise of the
court’s discretion to order specific performance: see Mountford
v Scott [1975] Ch. 258;
(7)
a third party has acquired in interest for value in the
property;
(8)
where there has been delay causing injustice to the other
party. (See e.g. Lazard Brothers Co Ltd v Fairfield Properties
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CO (Mayfair) Ltd (1977) 121 S 793; Easton v Brown [1981] 3
All ER 278).
13.3 If one party elects (at whatever stage) to press for performance
(rather than to accept a repudiatory breach by the other) and an order
for specific performance is made but not complied with by the date
stipulated by the court, the innocent party may apply for further
enforcement action by the court or alternatively, he may apply for an
order declaring that the contract has been determined. Once the party
in breach becomes subject to the court’s order to perform the contract,
the court retains its equitable jurisdiction to “police” the enforcement
of the contract and this would also entitle the court to declare that the
contract has come to an end by virtue of the non-compliance with its
earlier order. It may be appropriate for an order in the nature of an
“unless” order to be made before that step is taken: see, by way of
example, Ahmed v Wingrove [2007] EWHC 1777 (Ch).
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